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IRCTC IPO subscribed 3.25 times on Day 2, retail investors' support continues

The company's business model, strong earnings, big customer base and consistency in business segments has seen domestic as well as global brokerages give a subscribe call for the IPO.

October 04, 2019 / 02:13 PM IST

The initial public offer of the state-owned Indian Railway Catering and Tourism Corporation (IRCTC) was fully subscribed on October 1, the second day of subscription .

Continued support from retail investors saw the issue being subscribed 3.25 times.

The Rs 645-crore initial public offering received bids for 6.55 crore equity shares against the IPO size of 2.016 crore shares, data available on exchanges show.

The retail investor category has been subscribed 6.2 times, while that of non-institutional investors 1.73 times and qualified institutional buyers 1.65 times. The reserved portion of employees subscribed 2.64 times.

Here is all you need to know about IRCTC IPO


The issue comprises an offer for sale of 2,01,60,000 shares and after stake sale, the government's shareholding in the company will be reduced to 87.40 percent. Out of the total issue size, 1,60,000 equity shares are reserved for eligible employees.

The price band has been fixed at Rs 315-320 per share and the bidding for the offer of the railways' tourism and catering arm closes on October 3.

Retail investors as well as employees will get shares at a discount of Rs 10 per share to final offer price.

Domestic as well as global brokerages have given a subscribe call for the issue as they like the company's business model, strong earnings, big customer base and consistency in business segments.

IRCTC is the only entity authorised by the Indian Railways to provide services. This allows to increase market share in e-ticketing, packaged drinking water, and in e-catering.

It has one of the largest customer bases in India, which will help it to push new product offerings such as executive lounges, budget hotels, and travel and tourism, said PhillipCapital, which recommended subscribing the issue.

"We like the business model, strong customer base, and increasing wallet share – which should lead to higher than growth, margins, and return on capital employed (RoCE)," it said.

IRCTC has started levying a conveyance fee—of Rs 15 and Rs 30 on AC & non-AC  ticket bookings— which gives strong revenue visibility. Hence, the global brokerage expects revenue/EBITDA/PAT CAGR of 17/37/44 percent over FY19-21.

It is a zero-debt company with RoE/RoCE of 42/59 percent, cash-on-books of Rs 1,110 crore and dividend pay-out ratio at 60 percent. Its incremental capex planned from FY21 to FY23 is Rs 180-200 crore, mainly to increase drinking water capacity and IT backend operations.

The state-owned entity operates in four business segments—internet ticketing, catering, packaged drinking water, under the Rail Neer brand, and travel and tourism.

At the upper end of the price band, IRCTC demands PE multiple of 18.8x of FY19 EPS and the recent tax reduction by government to 25.2 percent and an increase in revenue from service charge for online ticketing will improve profitability, said Angel Broking which also advised subscribing the issue.

The internet ticketing segment contributed 12.35 percent to its FY19 revenue against 13.63 percent the previous year. The catering business accounted for 55 percent of the revenue against 48.70 percent last year. Packaged drinking water counted for 9.28 percent revenue against previous year’s 11.13 percent, while travel and tourism 23.38 percent against 26.54 percent.

IDBI Capital Markets & Securities, SBI Capital Markets and YES Securities (India) are the lead managers to the offer.

Note: The earlier version of the article mentioned the discount was 10 percent. The discount being offered in Rs 10. The error is regretted.
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